Craig Wear, a CFP, explains why you might pay taxes now on tax-deferred retirement accounts to avoid bigger tax bills later. If you don't have cash on hand to cover the tax bill, you'll have to sell assets to pay it.
So what you've just done is you've taken money that's going to be that you've had tax deferred for all these years, you've decided that now's the time that you should pay tax on it so that you avoid paying a lot more tax later. And it ends up in a totally tax free state, which is a beautiful thing. The process is really simple. And if you're going to pay taxes from within the account, then you have to. If the cash to pay the taxes is not already sitting in a money market or cash account, then you have to liquidate something in order to pay the taxes to get it done.
